IOOF Holdings (ASX: IFL) has had a good run since our initial recommendation at a price of $2.88 back in November 2020. This translates to a return of 12% even after today’s sell-off. During this time, the ASX-200 had a spectacular month of November and delivered 9.5% return. Thus, IOOF overperformed the benchmark index by 2.5%.
The 10% dip today occurs as the broader markets have slid. However, IFL has also been hit by some bad news this morning. The business update shared shows that FUMs declined $400 million during Q2 of FY2021. Market movements did however bring in $12.7 billion due to good performance in financial markets. This is largely due to the markets having the best November in years. However, financial advice firm departures and what IOOF terms “one-off” costs have resulted in a decline in FUMs. These costs have amounted to $10 billion:
- $8.1 billion from the transfer of accounts to Westpac as their agreement ended.
- $1.5 billion from the liquidation of the cash management fund
- $400 million from transfers from the cash management fund
The financial advice segment is under transformation and the net outflows was $1.3 billion. 22 financial advisors are said to have exited the business during Q2 FY2021. These 22 clients were responsible for $869 million in FUMs.
The portfolio and estate administration saw inflows of $40 million, a hit on growth, compared to $360 million net inflows in the previous corresponding period.
Investment Management also saw net outflows of $2.2 billion as reinvestment into external interest-bearing cash accounts. $1.9 billion was pulled out of the cash management fund. Pensions & Investments had a net outflow of $625 million.
As IOOF restructures its business and finds a way to successfully integrate the acquisition of MLC, they will incur costs that will offset any good performance. A consolidation of asset prices in the Australian markets this quarter can have a negative effect on IOOF before it gets better. Members who are exposed to the stock are recommended to “Hold” their positions given the high dividend yields.